Expert answer:I need help with this DQ and ethical culture
Answer & Explanation:CHAPTER 8 FROM THE TEXT IS ATTACHED AT THE BOTTOM!Checklist: Ethical Health Assessment—How Ethical Is Your Organization?Read Chapter 8 in Gonzalez-Padron (2015). Complete the Checklist: Ethical Health Assessment—How Ethical Is Your Organization?, then answer these following questions from the text:What additional questions may uncover the ethical culture of an organization?Which, if any, of these questions are seeking confirmation of the ethical climate (perceptions) rather than the ethical culture (values, norms, and artifacts)?How could management measure the ethical health of an organization other than survey questions? Guided ResponseRefer to terms as used in the textbookChapter 8
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8
Organizational Culture
Damien Dovarganes/Associated Press
Learning Outcomes
After reading this chapter, you should be able to do the following:
• Examine how organizational culture drives ethical behavior.
• Analyze best practices for developing an ethical culture.
• Evaluate the eight criteria required for an effective ethics and compliance program.
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Introduction
Introduction
Target’s Struggle with Ethical Culture
After being one of three U.S. retailers recognized for exemplary ethical standards and practices for seven consecutive years, Target was not included on Ethisphere Institute’s 2014
World’s Most Ethical Companies list (Adams, 2014). Ethisphere Institute conducts a survey
of large public and private international companies and publishes the annual list in its magazine. Ethical culture is a component in ranking the most ethical companies, looking for the
adoption of a values-based culture in the organization, workforce acceptance of the culture,
and employee behavior according to the ethical culture.
Target’s fall from the list comes after a 2013 data breach of customer credit card data during
the Christmas shopping season. Even with extensive data security measures in place, a Russian hacker accessed customer credit card and personal information from purchases made
from November 27 to December 15. Reports indicate that Target received initial warning of
malware as early as November 30, but did not take action until enforcement agencies contacted the company two weeks later. Most customers learned of the leaking of their sensitive
data from media news outlets on December 18, one day before Target released a press statement asserting that “Target alerted authorities and financial institutions immediately after
it was made aware of the unauthorized access, and it is putting all appropriate resources
behind these efforts” (Target, 2013, para. 3). As more information emerged, the company
reported the unauthorized access to credit card or personal data of over 110,000 customers.
The manner in which the large retailer handled the data breach crisis demonstrates an organizational culture that ignored warnings, failed to tell customers all available information,
and lacked empathy for customer concern of financial harm (Levin, 2014). The investors,
employees, managers, and media considered that the organizational culture of Target had
become too controlling and unresponsive to new information. The chief information officer
(CIO) accepted responsibility for the failure of data security and resigned from the company.
In response to shareholder demands for greater accountability, a new chief executive officer
(CEO) and some board members were appointed in 2014.
Why is the focus on Target’s organizational culture after this crisis? Culture matters in business. A healthy culture allows employees to live their values and perform without fear of retaliation, whereas dysfunctional cultures lead to poor decisions, lower performance, and greater
risk of ethical misconduct scandals (Gebler, 2012). Chapter 1 describes ethical culture as the
degree to which an organization is committed to ethical responsibilities, with expectations
for appropriate behaviors of its employees and suppliers. An ethical organization stresses the
incorporation of values in its strategic planning in order to develop a values-based culture.
United Launch Alliance is an example of a company that integrates values throughout the
organization and represents a basis for their ethical programs.
Chapter 7 examined ethical leadership and its role in creating an ethical culture. A company
with a strong ethical culture makes appropriate behavior a priority through leadership, fair
policies, open discussion of ethics and incentives for ethical behavior (Treviño, Weaver, Gibson, & Toffler, 1999). Companies with an ethical culture have formal business ethics programs
that include codes of conduct, ethical training, and reporting mechanisms for misconduct.
While an ethical culture denotes the values, norms, and artifacts of an organization, an ethical climate refers to employees’ shared perceptions of “ethically appropriate behavior and
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Organizational Culture Drives Ethical Behavior
Section 8.1
knowledge of procedural steps to address an ethical issue” (Kuntz, Kuntz, Elenkov, & Nabirukhina, 2013, p. 319). Ethical climate relates to the collective personality of the organization, made up of the employees’ ethical attitudes, views, and decision-making processes (Ethics Resource Center, 2009).
Building on the concept of ethical leadership, this chapter focuses on organizational culture
as a powerful driver of workplace behavior. An ethical culture can incentivize appropriate
behaviors in business. The following material describes how an ethical culture can overcome
informal group pressures for misconduct, how to measure the strength of a company’s ethical culture, and steps to develop a culture that promotes ethics in an organization. Finally,
the components of an organizational ethics program provide a framework for supporting an
ethical culture. These elements reinforce the importance of having an ethical leader who will
promote the company’s ethical culture.
8.1 Organizational Culture Drives
Ethical Behavior
Every organization with employees has a culture, sometimes termed corporate culture or
company culture, which drives employee behavior. Culture in an organization can be described
as “how we do things around here” (Gebler, 2012, p. 7). Organizational culture refers to “the
pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with the norms for behavior in the organization” (Deshpande &
Webster, 1989, p. 4). Therefore, the culture of an organization consists of shared basic values,
behavioral norms, and visible artifacts that guide behaviors and decision making (Homburg &
Pflesser, 2000). An ethical culture founded on values will stress expectations for appropriate
behaviors of its employees and suppliers.
Values, Norms, and Artifacts of an Ethical Culture
Shared basic values are basic assumptions outlining desirable ends and means that a group
has invented, discovered, or developed, and that have worked well enough to be considered
valid, and therefore, are taught to new members. Schein (1984) views shared values of an
organization in two ways: 1) overt, espoused values, and 2) values that are taken for granted.
The first relates to stated values that the company strives to follow. Organizations choose
values that reflect the history, heritage, and influence of the founders on the company’s value
structure. The innovative furniture company, Herman Miller, identifies operational values
that include curiosity and exploration as “two great strengths we take from our heritage of
research-based design” (Herman Miller Inc., 2014b, Curiosity & Exploration section, para. 1).
The core values of Heinz include operational and ethical orientations, such as team building
and collaboration, vision, innovation, results, and integrity (see Figure 8.1).
Values that are taken for granted, on the other hand, are considered espoused values that,
over time, transform into underlying assumptions about how things really happen in the
organization. These assumptions reflect the organization’s relationship to the environment,
how to interact with others, whether to trust others, and how to define truth. Target espoused
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Section 8.1
Organizational Culture Drives Ethical Behavior
values of great customer service with a mission to deliver “outstanding value, continuous
innovation, and exceptional guest experiences by consistently fulfilling our Expect More. Pay
Less.© brand promise” (Target, 2014, Our mission section, para. 1). Despite this mission, the
company appeared to have underlying assumptions about avoiding problems in order to
make sales targets (Levin, 2014).
Figure 8.1: Heinz core values
Heinz stresses operational and ethical principles in its list of core values.
VALUES
Mission Statement
As the trusted leader in nutrition and wellness,
Heinz — the original Pure Food Company — is dedicated to the
sustainable health of people, the planet and our Company.
Team Building
& Collaboration
We embrace great ideas
from everywhere and
everyone and respect
all individuals.
Vision
We define a compelling,
sustainable future
and create the path
to achieve it.
Results
We deliver on
commitments, take
accountability and
balance the shortand long-term.
Innovation
We spot consumer &
customer needs and
meet them with
simple, creative
solutions.
Integrity
We always tell the truth,
act with the highest ethical
standards and ensure that
our products are of the
highest quality.
Source: Heinz. (2010). Global code of conduct. Reprinted with permission.
Norms are expectations of desirable behavior found in the policies and procedures that guide
organizational decisions and actions. Companies express norms as principles for acceptable
behavior. Chapter 1 defines principles as the rules or standards that inform actions and thinking. Heinz builds on its values to offer three guiding principles for employee behavior: 1) “compliance with applicable laws and regulations,” 2) “no conflicts with Heinz’s best interests,” and
3) “adherence to high ethical standards” (Heinz, 2010, p. 6). Google’s ethical code includes the
expected behavior of making money without being evil, which is the foundation for several
core principles to guide the company’s conduct, such as “democracy on the web works” and
“great just isn’t good enough” (Google, 2014, para. 5, 11). Stated organizational principles represent a company’s preferred behaviors rather than the informal norms followed by most of
its employees. Target’s data security protocol would have prevented continued data loss after
the initial breach if its policies and procedures were indeed a company norm.
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Section 8.1
Artifacts are tangible expressions of shared values and norms and include a company’s
architecture, technology, manner of dress, rituals, documents, and stories (Schein, 1984). A
company’s code of conduct is an example of an artifact. Heinz incorporates its story to demonstrate company values in its global code of conduct:
It is, and has always been, the policy of H. J. Heinz Company to maintain the
highest level of professional and ethical standards in conducting its business
affairs. The Company places the highest importance on our reputation for
honesty, integrity, and high ethical standards. It is a reputation that originated
with our founder, Henry John Heinz, who used clear bottles for his products,
unlike his competitors, so that customers could see that Heinz’s products
stood for quality and were not made with cheap fillers. (Heinz, 2010, p. 5)
Source: Heinz. (2010). Global code of conduct. Reprinted with permission.
Social media postings are becoming a form of artifact, as their content often reflects a company’s espoused values. Cisco communicates company values through a public policy blog to
discuss the company positions on issues that are important to their business (Cisco, 2013).
These social media postings can also reflect underlying assumptions of company values. For
example, the tweets and Facebook page of the cofounder of the mobile dating app, Tinder, as
well as the company’s own Twitter account, included statements calling women “sluts” and
“whores” are now evidence in a sexual harassment lawsuit (Bercovici, 2014). A Target corporate employee’s post blasting the company for an unproductive workplace culture required
a response from Target’s Chief Marketing Officer Jeff Jones. Jones said, “While we would have
preferred to have a conversation like this with the team member directly, speaking openly
and honestly, and challenging norms is exactly what we need to be doing today and every day
going forward” (Malcolm, 2014, para. 6).
Importance of an Ethical Culture
An ethical culture that drives appropriate employee behavior is valuable to an organization.
Chapter 4 established the importance of an ethical organizational culture as it relates to compliance with national guidelines and regulations, but regulatory compliance is not the only
benefit. A strong ethical culture creates greater organizational commitment, stronger job satisfaction, and higher performance in employees. The ethical culture of an organization can
incentivize employees’ behaviors, align the informal culture of the organization with formal
policies and procedures, and attract and retain a talented workforce.
Complying With Regulations
In response to the accounting scandals in the early 2000s, the U.S. Securities Exchange
Commission equated a strong ethical culture with good governance. For example, the 2004
amendment of the U.S. Federal Sentencing Guidelines for Organizations (FSGO) includes a
requirement for companies to “promote an organizational culture that encourages ethical
conduct and a commitment to compliance with the law” (United States Sentencing Commission, 2013, p. 497). Companies can avoid monetary fines and sanctions by committing to
promote honesty and integrity throughout the organization.
Other countries have similar requirements in their company or have established anticorruption legislation. The U.K.’s Companies Act 2006 requires the board of directors to
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Organizational Culture Drives Ethical Behavior
encourage a culture that considers the long-term consequences of a business on its employees, suppliers, consumers, and the environment (Casson, 2013). Yet many of the European
nations continue to focus on technical aspects of director or top management responsibilities instead of the behavioral standards. The Organisation for Economic Co-operation
and Development Guidelines for Multinational Enterprises (2011b) stress the need for an
ethical culture built on a strong corporate governance procedure. The Belgian Directors’
Association (GUBERNA) provides a guide for behaving with integrity with advice such as,
“A director participates in the development and promotion of a culture of honesty” (Casson,
2013, p. 25).
Increasing Ethical Behavior
There is a proven link between an ethical culture and pressure to engage in ethical behaviors
in the workplace. Studies have shown that an organizational culture that supports ethical
values generates higher perceptions of honesty, lower pressures to act unethically, lower
observance of misconduct, and higher reporting of misconduct (Basran, 2012; Basran &
Webley, 2012; Ethics Resource Center, 2010). See Figure 8.2 for findings of the 2013 National
Business Ethics Survey® of the Ethics Resource Center on the relationship of ethical culture
strength and observed misconduct. The study of U.S. workers found that 88% of employees
observed misconduct when their company has a weak ethical culture, significantly more than
the 20% of employees who witnessed misconduct in companies that value ethical performance and build strong cultures (Ethics Resource Center, 2013b).
Figure 8.2: Relationship of ethical culture strength and observed misconduct
Employees Who Observed Misconduct in Previous 12 Months
More employees observe unethical behavior in companies with a weak ethical culture than those with
strong ethics programs.
100%
80%
60%
40%
88%
59%
20%
32%
20%
0%
Weak
Weak-Leaning
Strong-Leaning
Strong
Strength of Ethics Culture
Source: National Business Ethics Survey of the U.S. Workforce. (2013). Arlington, VA: Ethics Resource Center. Reprinted with permission.
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Section 8.1
Studies in the United Kingdom, Germany, France, Italy, and Spain have discovered results that
are similar to those of the U.S. study. In the United Kingdom, 70% of workers with unsupportive ethical cultures observed misconduct (Basran & Webley, 2012). Almost half of the
employees surveyed in the four countries in continental Europe observed misconduct when
their employer had a weak ethical culture, whereas only 18% of employees with a strong ethical climate witnessed unethical behaviors (Basran, 2012).
Aligning Informal Culture of Groups
Ethical companies are able to align the informal culture that guides employees’ behavior with
the formal components of an ethical culture. Recall from Chapter 1 that informal culture is
the mechanism by which employees “learn the ‘true values’ of the organization” (Bazerman &
Tenbrunsel, 2011a, p. 117) through employee stories, observations, and experiences, which
may conflict with organizational values. Formal components, on the other hand, include
structures, policies, decision-making processes, and ethics training. The informal culture
reflects the way things are really done—and is trusted by employees more than formal written standards. Therefore, informal cultures have a greater influence on ethical behavior in the
workplace.
Financial and time pressures heavily influence informal cultural norms that conflict with the
formal components of an ethical culture. For example, in a study of Swedish auditors, Svanberg and Öhman (2013) found that informal norms can affect audit quality when auditors
experience time and budget pressure from their company or client. Audit firms bid for contracts that often result in tight deadlines. Auditors then deviate from formal procedures by
accepting weak client explanations, endorsing a required audit step without completing the
work or noting the omission of procedures, and shifting time to non-chargeable areas of the
audit or to another client.
Svanberg and Öhman (2013) found that audit firms accept the unethical practice of shifting
time primarily because auditors believe such misconduct will not be detected nor punished.
Shifting time to non-chargeable areas of the audit or another client has become an informal
industry norm. Treviño et al. (1999) found that employees’ perceptions that the company
consistently follows formal codes, policies, and procedures has the greatest influence in preventing the establishment of informal norms that lead to unethical behavior. Therefore, an
ethical culture is required for the formal elements to be part of the larger informal culture to
support ethical conduct every day (Treviño & Brown, 2004).
Attracting a Talented Workforce
Company culture influences how employees describe where they work, understand the business, and see themselves as part of the organization (Hansen, 2011). A moral misalignment
occurs when an employee feels that there are ethical or moral differences between how
the company and that individual believe the firm should operate, often becoming a signal
to leave the workplace and seek employment elsewhere (Smith, 2013). Employees are less
likely to leave a company when an organization’s values to respect employees provide for
ethical labor practices in the organization (Stewart, Volpone, Avery, & McKay, 2011). Therefore, building a strong ethical culture is key to attracting talent that, in turn, determines a
business’s success.
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Organizational Culture Drives Ethical Behavior
Assessing the Strength of an Ethical Culture
Potential and current employees of an organization should take into consideration its ethical
culture to avoid moral misalignment. However, measuring the strength of an organization’s
ethical culture is challenging. As demonstrated by the Chapter 7 example of Enron’s …
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